Corporate Financing Pattern in India: Changing Composition and Its Implications

--J Dennis Rajakumar

This paper examines the financing pattern of private corporate sector in India. Several studies in the last three decades have increasingly emphasized the role of finance in influencing investment activities of firms. In India, the state had actively fostered the development of financial system till the 1980s, though it favored bank-based system. With the ushering in of financial sector reforms since the early 1990s, the emphasis on equity market has gone up. This paper finds that while corporate sector relied more on bank/institution sources of funding till the early 1990s, its reliance on equity market has gone up since then. The paper ends with a discussion on the implications of such changing financing pattern.

© 2014 IUP. All Rights Reserved.

The Impact of Corporate Board Structure on the Pricing Performance of Initial Public Offerings

--Seshadev Sahoo

This study examines the corporate board structure and its impact on the performance of the Initial Public Offerings (IPOs) using a database of 176 IPOs issued during 2007-11. The board structure of IPO firms is evaluated from the viewpoint of board size, maturity, diversity, reputation and leadership, while the performance of IPOs is estimated by measuring underpricing, aftermarket volatility, and subscription rate.

© 2014 IUP. All Rights Reserved.

Undercurrents of Options Trading

--G Naresh, S Thiyagarajan and S Mahalakshmi

Large amount of trading has let the market become volatile, leading to the emergence of volatility instruments in the market to safeguard the risk-averse investors against uncertainties arising out of volatility in asset prices. The basic idea of this paper is to see the effect of VIX, which is a volatility index based on the index option prices; the Index Option (Nifty Option Contracts), whose underlying is an index (Nifty) comprising of many stocks; and the underlying index Nifty, which captures the behavior of the overall equity market. The combined effect of these three indices on open interest, which tells the number of outstanding contracts that exist for a particular stock at the end of the trading day, is studied using Structural Equation Modeling (SEM). The study used NSE data for a period of three years from March 2009 to February 2012. The outcome of the study will aid in understanding the indicators of options market in a better way.

© 2014 IUP. All Rights Reserved.

The Impact of IFRS Adoption on Stock Market Volatility

--Pushpa Negi, Romit Raja Srivastava and Shiva Bhasin

From 2005 onwards, consolidated financial statements of listed European companies of around 7,000 had to comply with IFRS (IAS). This study examines the impact of IFRS adoption on the stock market volatility of 10 European stock markets by fitting Autoregressive Conditional Heteroskedasticity (ARCH) and Generalized Autoregressive Conditional Heteroskedasticity (GARCH) models. The data was obtained from yahoofinance.com for the period January 1, 2005 to December 31, 2005. The stationarity of the time series was checked through unit root test and then descriptive statistics of different stock indices was obtained. The ARCH model was applied to check the presence of ARCH effect in all return series and GARCH(1, 1) model was used to estimate the return volatility. The results suggested that there was high volatility of returns in the markets during the sample period. The GARCH coefficient of Austria, France, Germany, Hungary, Spain and the United Kingdom was close to 1, which indicates that volatility shocks were quite persistent. The coefficient of the lagged squared returns was also positive for these indices, and it implied that stock market volatility or market operators react more to good news than bad news, or the market is positive about the adoption of IFRS. On the other side, the IFRS adoption news did not affect the volatility of Greece, Italy, the Netherlands and Portugal during the sample period.

© 2014 IUP. All Rights Reserved.

Asymmetric and Volatility Spillover Between Stock Market and Foreign Exchange Market: Indian Experience

--Pradiptarathi Panda and Malabika Deo

The 2008 financial crisis created a series of setbacks in major financial institutions worldwide. This paper attempts to investigate the volatility spillover effect between foreign exchange and stock market during different periods like pre-, post- and in-crisis period in India. By applying GARCH and EGARCH models in the daily data series of both rupee- dollar exchange rate and CNX Nifty return series, we report evidence of asymmetric and volatility spillover in the three sub-periods between these two markets. The post-crisis period has higher asymmetric and volatility spillover as compared to other periods. This result may help the investors, policy makers as well as portfolio managers for taking appropriate investment decisions.

© 2014 IUP. All Rights Reserved.

Has the Global Financial Crisis Made India’s Stock Market More Independent?

--T G Saji

This paper empirically examines the short-run as well as long-run relationship of the Indian stock market with the major developed markets of the world during the period 2005-13. The objective of the analysis is to decide whether the financial recession of 2008 offers better diversification benefits to global investors through equity investments in India. The empirical results of Granger causality test find causality from the developed markets to the Indian market in the short run during pre- and post-crisis days. However, Johansen’s cointegration methodology fails to provide evidence of price integration among markets after recession and now the long run price movement in the Indian stock market is not driven by factors common to other markets. These findings confirm further possibilities of diversification to global investors through their equity investments in India.

© 2014 IUP. All Rights Reserved.

A Study of Quarterly Earnings Announcement and Stock Price Reactions

--T Mallikarjunappa and Janet Jyothi Dsouza

The purpose of the study is to investigate whether there are any significant abnormal returns around the quarterly earnings announcement and to examine whether the semi-strong form of Efficient Market Hypothesis (EMH) applies to the Indian stock market. This study focuses on the BSE200 index-based companies listed on the Bombay Stock Exchange (BSE) and uses quarterly earnings announcement as an event. We use event study methodology to examine the behavior of the stock prices. The results show that the security prices are predictable based on quarterly earnings announcement information and predictability can generate abnormal profits.

© 2014 IUP. All Rights Reserved.